Covered call writing strategy

Covered call writing strategy

A strategy that involves writing a call option on securities that the investor owns. See: Covered or hedge option strategies.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Covered Call Writing Strategy

In options, a strategy in which one writes a call option with the intention to avoid a margin account. Because a call writer is obligated to sell the underlying should the option buyer exercise the option, the writer must either already own the underlying or be able to borrow. Using a covered call strategy means the writer already owns the underlying and does not borrow it from a broker. If the writer sells the call at the same time he/she buys the underlying, this is called a "buy-write." If the writer already owned the underlying it is referred to as an "overwrite." In both these situations, the option is immune to margin calls.
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